Judge: Layne H. Melzer, Case: 2014-00738618, Date: 2022-08-04 Tentative Ruling

Ptlf. Crown Valley Holdings, Llc
Motion - Other (to Amend the Judgment to Add Brian Roche as an Additional Judgment Debtor)

Judgment Creditor/Plaintiff Crown Valley Holdings, LLC’s motion to amend the Judgment against Judgment Debtor/Defendant Stars and Bars, LLC (“S&B”) to add Brian Roche as an additional Judgment Debtor is denied.

Defendant’s request for judicial notice is granted.

Defendant’s objections to the declarations of Lisa Miller, Colby Durnin and Betty Shumener are all overruled.

Plaintiff’s objections to the declaration of Brian Roche are sustained as to Nos. 1, 2, 4, 5, 6, 8, 9, 12, 14, 16, 22, and 23, and overruled as to the remainder.

Plaintiff’s objections to the declaration of James Orland are sustained as to Nos. 1-8, 10, 11, and 15-18, and overruled as to the remainder.

As an initial matter, Plaintiff’s and Defendant’s exhibits are electronically bookmarked, but they are not titled.  Pursuant to CRC, Rule 3111(f)(4) states that unless they are submitted by a self-represented party, exhibits filed electronically “must include electronic bookmarks with links to the first page of each exhibit and with bookmark titles that identify the exhibit number or letter and briefly describe the exhibit.” Also, the depositions submitted by both sides are not marked.  CRC, Rule 3.1116(c) states that “[t]he relevant portion of any testimony in the deposition must be marked in a manner that calls attention to the testimony.”  These deficiencies increase the burden on the Court and result in an expenditure of otherwise unnecessary time and resources to adequately review the evidence. Counsel for both parties are admonished for these violations, given that there are close to 2,000 collective pages of evidence related to this motion.  

Counsel for Defendant is additionally admonished, as Defendant’s opposition is 19 pages long.  CRC, Rule 3.1113(d) provides: “Except in a summary judgment or summary adjudication motion, no opening or responding memorandum may exceed 15 pages…” (Emphasis added.)  While the Court has considered the full opposition at this time, counsel is cautioned that in the future if it exceeds the permissible page limits, the Court may in its discretion decline to consider such briefing. (See CRC, Rule 3.1113(g).)

Code of Civil Procedure section 187 authorizes the trial court to amend a judgment to add additional judgment debtors under “the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant. [Citation.] In addition, even if all the formal elements necessary to establish alter ego liability are not present, an unnamed party may be included as a judgment debtor if the equities overwhelmingly favor the amendment, and it is necessary to prevent an injustice.” (Carolina Casualty Insurance Company v. L.M. Ross Law Group, LLP (2012) 212 Cal.App.4th 1181, 1188-1189 [cleaned up].)

Code Civ. Proc., § 187 states:

When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this Code.

“To prevail on the motion, the judgment creditor must show, by a preponderance of the evidence, that: ‘(1) the parties to be added as judgment debtors had control of the underlying litigation and were virtually represented in that proceeding; (2) there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist; and (3) an inequitable result will follow if the acts are treated as those of the entity alone.’” (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 280.) “The court is not required to hold an evidentiary hearing on a motion to amend a judgment, but may rule on the motion based solely on declarations and other written evidence.” (Ibid.)

The underlying Unlawful Detainer Complaint was filed on 8/7/14 by Plaintiff Crown Valley Holdings, LLC against Defendant Stars and Bars, LLC. On 7/15/15, the Court entered Judgment (amended) on a jury verdict in favor of Plaintiff and against Defendant.  Pursuant to the judgment, Plaintiff was awarded $149,806.34 plus interest and its attorney fees and costs in the amount of $461,593.88.  Notice of entry of judgment was filed and served on 7/22/15.

This matter is atypical, as the judgment to be amended is an unlawful detainer judgment.  Defendant contends that adding an alter ego judgment debtor, and that such would violate its due process rights (due to the summary nature of UD actions).  This appears to be a matter of first impression. Both parties cite to Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, in which the Court of Appeal reversed the trial court in awarding judgment against two individual defendants who were named as individual defendants on an alter ego theory in an unlawful detainer action. Vasey is distinguishable as it dealt with a default judgment.  The court held that shareholders could not be joined to a default judgment when the only basis for doing so was the landlord's conclusory alter ego allegation. (Id. at 749.)  The court specifically declined to address due process arguments, stating that “[i]t is unnecessary to decide whether… the inclusion of an alter ego cause of action in an unlawful detainer proceeding violates the defendants’ due process rights.” (Id.)  

There is no legal authority that prohibits amending an UD judgment to add an alter ego.  If the legislature wanted to prohibit this, it would likely have carved out a statutory exception. 

Accordingly, the Court finds that the UD nature of this matter does not preclude the relief sought.

As noted above, this motion concerns a 2015 Judgment.  Plaintiff waited 7 years to bring this motion.  “If, in light of the lapse of time and other relevant circumstances, a court concludes that a party's failure to assert a right has caused prejudice to an adverse party, the court may apply the equitable defense of laches to bar further assertion of the right.” (In re Marriage of Fellows (2006) 39 Cal.4th 179, 183.)

The case of Alexander v. Abbey of the Chimes (1980) 104 Cal.App.3d 39 is somewhat on point.  Like here, the plaintiff waited nearly seven years to file a motion to amend a judgment to add an alter ego.  The court stated that “Equitable relief from a judgment may be refused to a party thereto if [] (a) before or after the judgment was rendered the complainant or a person representing him failed to use care to protect his interests, or [] (b) after ascertaining the facts the complainant failed promptly to seek redress.” [citing Rest., Judgments, s 129; emphasis in original]. (Id. at 48.)  It found that “in the absence of any reasonable explanation for nearly a seven-year delay in moving for amendment, the trial court abused its discretion in granting this belated motion for amendment of the judgment. (Id. at 48-49.)

The Court notes that in Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 285, the court disagreed with the Alexander court, stating that there additionally needed to be a finding of prejudice in order to invoke the doctrine of laches. 

S&B has shown that it has been prejudiced by the delay.  Since the time of the judgment, its key witness, Bob Lehmeyer who allegedly was solely responsible for every facet of S & B’S operations, including the rental dispute which gave rise to the judgment, has passed away. While Lehmeyer testified at trial in 2015 during the UD Case, Mr. Roche did not. (Roche Decl. ¶ 21.)

Plaintiff’s arguments in its Reply brief with respect to the application of the doctrine of laches are weak and misleading.  Plaintiff contends that Roche has hidden his personal address from Crown Valley since S&B was evicted to evade Crown Valley’s collection efforts. (Supp. Shumener, Ex. E, p. 43.)  This evidence is from a 4/22/22 deposition, where Roche refuses to provide his current home address. Roche notes that he could be contacted through counsel at any time. There is no evidence that Plaintiff ever attempted to obtain Roche’s address prior to this.  Plaintiff further states that it was unable to locate Roche until August of 2021 when he appeared in person for the trial in the 2017 Lawsuit, citing to the supplemental Shumener declaration (ROA 436).  Contrary to Plaintiff’s argument, Shumener does not actually testify that she has been unable to locate Roche prior to this time.  What happened between 2015 and August of 2021, and why couldn’t Roche be served at some point during those years?  Pursuant to Plaintiff’s own compendium of evidence filed with the moving papers, Roche was very active in the ensuing lawsuits filed by S&B, and in fact was deposed several times in his capacity as the PMK.  (See Plaintiff’s exhibits 22, 23, 24, and 25.) 

For the foregoing reasons (Plaintiff’s unexplainable seven-year delay in bringing this motion and Defendant’s showing of prejudice), the Court denies this motion.

Alternatively, the Court finds that Plaintiff has not sufficiently established a unity of interest, that would merit the amendment of the judgment. 

The court considers many factors to determine “whether there is sufficient unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist.” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1073 (Misik).)

The court in Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486 provides a list of non-exhaustive factors to consider: 

[1] commingling of funds and other assets, failure to segregate funds of the separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses;

[2] the treatment by an individual of the assets of the corporation as his own;

[3] the failure to obtain authority to issue stock or to subscribe to or issue the same;

[4] the holding out by an individual that he is personally liable for the debts of the corporation; the failure to maintain minutes or adequate corporate records, and the confusion of the records of the separate entities;

[5] the identical equitable ownership in the two entities; the identification of the equitable owners thereof with the domination and control of the two entities; identification of the directors and officers of the two entities in the responsible supervision and management; sole ownership of all of the stock in a corporation by one individual or the members of a family;

[6] the use of the same office or business location; the employment of the same employees and/or attorney;

[7] the failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization;

[8] the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation;

[9] the concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities;

[10] the disregard of legal formalities and the failure to maintain arm's length relationships among related entities;

[11] the use of the corporate entity to procure labor, services or merchandise for another person or entity;

[12] the diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another;

[13] the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions;

[14] and the formation and use of a corporation to transfer to it the existing liability of another person or entity.

(Id. at 512-513.)

While Plaintiff argues that S&B is a shell corporation that never did any business, had any employees or offices, it has been shown that the reasons ultimately for this was because there was a hazardous flood that occurred on the premises, which arguably prevented S&B from opening its restaurant. (Roche Decl., ¶¶ 15, 19.)  

Roche testified that he informally had hired a number of employees, but that he had to terminate them on 11/1/14, because the insurance company disclaimed coverage as of this time for the flood damage. (Plaintiff’s Compendium, Exs. 20 at pg. 320 and 21 at 329-332.) 

When S&B was formed, Morgan Roche was listed as managing member she signed the asset purchase agreement (of prior tenant West Derby Restaurants) as President. (Plaintiff’s Compendium, pg. 183.)  Roche declares that he was never a signor on any S & B account and never had access to the money. (Roche Decl., ¶ 29.)  He states that the person responsible was Mr. Lehmeyer, who was to be the operations manager. (Roche Decl., ¶ 21, 30.)

Also, given the circumstances surrounding the eviction, the Court does not find the evidence sufficient to conclude that S&B was egregiously undercapitalized.  Roche declares that his reasons for requesting money from the landlord, as to make extra improvements to the space. (Roche Decl., ¶ 13.)  Among other things, Plaintiff cites to Roche’s deposition testimony in 2018 that S&B did not currently have any assets. (Compendium, Ex. 22, p. 352-353.)  At that time, it had been 4 years since the unlawful detainer action; this does not seem unusual in light of the events occurring after the flood. (Plaintiff’s compendium, Exs. 20, 21.) 

 It is also relevant that the prior tenant’s owner, Dan Lauriano, stayed on as guarantor of lease obligations. (Plaintiff’s Compendium, pg. 111.)  

Based on the foregoing, the Court does not find that there was a unity of interest between S&B and Roche, such that the separate personalities of the individual and the corporation no longer exist.” (See Misik, supra, 197 Cal.App.4th at 1073.)